In the 1980s and early 1990s, multistoried Japanese department stores in city centers were at the top of the retail pyramid. But by the mid-1990s, with Japan in a decade-long slump, these pricey emporiums filled with brand-name goods lost much of their luster. Luxury goods makers began siphoning off well-heeled customers by opening their own stores, while penny-pinching middle-class shoppers headed to discounters. Deregulation of the retail industry and deflationary pressure have helped hypercompetitive superstores and specialty stores at the expense of traditional retailers.
That has led to a steady slide in sales and a flood of red ink at department stores. In September, Mitsukoshi announced that it was cutting its 2004 sales forecast from $8.4 billion to $8.3 billion and that it expects to lose $22 million in the year to February, 2005. That would make four unprofitable years in the last eight. A few days later, Takashimaya reported sales were down 3.7% for the six months ended in August, though it says it will eke out a profit this year. Trendier stores such as Isetan have done better, but overall the 98 members of the Japan Department Stores Assn. have seen sales decline 13% since 1999.
The grandes dames of retailing insist they can grow their way out of the slump with new facilities and by streamlining procurement. But analysts say a fresh product strategy focusing on clearly defined buyers is what's needed. "Department stores in Japan are trapped by a lack of innovation," says David Marra, a retail analyst at consultant A.T. Kearney Inc. in Tokyo. Until Japan's traditional stores find a new formula, their bottom line will too often be as red as their carpets. By Ian Rowley in Tokyo